If a firm imposes a capital constraint on investment projects,the appropriate decision criterion is to select the set of projects that has the highest positive net present value subject to the capital constraint.

Question

Quizplus · Accepted Answer

When there is a capital constraint, the firm cannot invest in all the projects that have a positive net present value. Therefore, the appropriate decision criterion is to select the set of projects that has the highest positive net present value while staying within the available capital budget. This ensures that the firm maximizes its returns while efficiently utilizing its limited resources.

If a Firm Imposes a Capital Constraint on Investment Projects,the